Feb 19
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Alef Dias
Grains, Oilseeds and Livestock Weekly Report - 2024 02 19
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Wheat: Record stocks and production in Russia
- Russia continues to bring bearish fundamentals to the wheat markets. Weather conditions in most winter wheat regions remain favorable for the crop, with the potential for record total production.
- Given these conditions, consultancies specialized in the Russian market have raised their estimates for the country's Harvest last week. SovEcon raised its forecast for Russian wheat production in 2024 by 1.4M mt, to 93.6M mt, while IKAR raised its estimate to 93M mt.
- Looking at the demand side, some of the main destinations continue to show weak demand. The recent slowdown in exports has pushed Russian wheat stocks to record levels. Russia's wheat stocks (on-farm and off-farm; excluding small businesses) on January 1st reached 36.5M mt, marking a 1% YoY.
Introduction
Russia continues to bring bearish fundamentals to wheat markets. The recent slowdown in exports has pushed Russian wheat stocks to record levels. Looking ahead to the country's next winter crop, conditions continue to point to another large production.
Fig. 1: Production, Domestic Use and Exportable Surplus - Wheat Russia (M mt)
Source: USDA.*24/25 considering SovEcon's estimates
Conditions remain favorable for Russia’s wheat
Weather conditions in most winter wheat regions remain favorable for the crop. Over the past month, minimum temperatures in all federal districts have been 2 to 4 °C above normal while significant snow cover of 15 cm or more was maintained in the Central and Volga regions.
Currently, the climate in the South is exceptionally warm, with temperatures 10 to 12 °C above normal. These temperature fluctuations can threaten winter crops, but only in the event of a sudden cold snap.
A sharp drop in the average temperature is not expected in the coming weeks. Weather models predict that temperatures will be 1-2 °C above normal in the south and within or slightly below normal in the Central and Volga regions.
Given these conditions, consultancies specialized in the Russian market have raised their estimates for the country's harvest. SovEcon raised its forecast for Russian wheat production in 2024 by 1.4M mt, to 93.6M mt, while IKAR raised its estimate to 93M mt.
Fig. 2: Temperature observed over the last 60 days (difference to normal, ºF - wheat production shown internally)
Source: World AgWeather
Fig. 3: Temperature anomaly - Next 15 days (difference from normal, ºF)
Source: World AgWeather
Slowdown in exports pushed stocks to record levels
Russia's wheat stocks, both on-farm and off-farm (excluding small businesses), reached 36.5M mt on January 1st, marking a 1% increase from last year's level, according to Sovecon. Stocks have surged to record levels amid relatively sluggish exports in recent months.
Off-farm wheat stocks were recorded at 14.7M mt, up 5% on last year. On-farm wheat stocks totaled 21.8M mt, a slight drop of 1% on the previous year.
In the southern region of Russia, total wheat stocks remained stable at 12.5M mt, matching last year's figures; in the central region, they reached 9.3M mt, showing an increase of 2%; and in the Volga region, stocks stood at 7.6M mt, an increase of 5%.
Russia has built up record stocks amid slow exports in recent months. Estimates show that from November to January, Russia exported 10.4M mt of wheat, compared to 12.3M mt in the same period last year. Exports have slowed amid government efforts to regulate wheat prices.
Refinitiv points out that Russia exported 3.59M mt in January, up 6% on the previous month, but down 6% on the previous year. This slowdown is mainly due to weaker demand from Middle Eastern and North African countries. The pattern of exports persisted in February, with 1.8M mt of shipments tracked up to February 15.
Fig. 4: Monthly exports by ship - Wheat Russia (M mt)
Source: Refinitiv
In summary
Recent fundamentals from the Russian market should continue to exert downward pressure on wheat prices. Looking at the demand side, some of the main destinations continue to reduce their pace of imports. On the supply side, conditions remain very positive for the winter crop in Russia, which is on track for another total production (winter + spring) of 90M mt.
Fig. 5: FOB wheat prices - Europe and the Black Sea (USD/ton)
Source: Refinitiv
Weekly Report — Grains and Oilseeds
Written by Alef Dias
alef.dias@hedgepointglobal.com
Reviewed by Victor Arduin
victor.arduin@hedgepointglobal.com
victor.arduin@hedgepointglobal.com
www.hedgepointglobal.com
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